2024 (9) TMI 1115 - AT - Income Tax

Valuation of closing stock - undervaluation of stock - AO held the view that the assessee was required to value the closing stock of Karimnagar in parity with rates of closing stock at its TADA premises - arguments of the assessee that the Karimnagar stock was of comparatively inferior in quality as compared to TADA - CIT(A) has concluded that the value of Granites mined at Karimnagar are the distinct when compared with those procured and used for production at TADA - HELD THAT - We find that the Ld. First appellate authority has passed a speaking order after carefully analyzing the material available on records and therefore does not require any interference at this stage. Accordingly, we confirm the order of the Ld. CIT(A) in respect of deletion of addition and dismiss the appeal filed by the Department. Variation in quantum of dispatch of raw blocks from Karimnagar unit - AO noted that the mineral assessment reports prepared by the Department of mines and geology showed quantum of output dispatched from Karimnagar unit of 5739.893 cu.m. As against this, the quantum sales admitted was only 3024 cu.m which included an inter unit transfer of 503.57 cu.m to TADA, thus there was a difference of 2715.893 cu.m - AO rejected the arguments of the assessee that the variations had arisen between the dispatches and the actual quantity invoiced - HELD THAT - FAA proceeded to accept the contention of the assessee that the difference between the output qua payment of seignorage fees and the actual sales was natural and customary in this line of business and deleted the additions made. Whereas there can be no dispute regarding the fact that there is a strong likelihood of qualitative difference between the quantity mined and the quantity actually sold. It is also an undisputed fact of the case that the government collects its royalty or what is known as seignorage fees on gross measurement of excavated blocks. Quantify the ratio of damaged or unsaleable portion vis- -vis high quality and saleable portion of the granite - The report is silent about percentage ratios available in Andhra Pradesh where the mining was done. It is seen that the appellant has claimed about 50% damages / unsaleable proportion qua the gross measurement of excavated granites. The shodhganga study report estimates lowest marketability of excavated granites at 20% in Tamil Nadu and highest at 75% in Rajasthan. Estimate of 60% marketable granite being procured by the assessee can be made - AO is therefore directed to recompute his addition by allowing the assessee a benefit of 40% as damaged or unsaleable granite stock by examining the books of accounts of the assessee including bills and voucher concerning the impugned granite blocks of Karimnagar Unit. The assessee is directed to render all assistance and cooperation to the Ld. AO in compliance of these directions. Non-cooperation from assessee side can be adversely viewed. To the extent the grounds of appeal raised by the Appellate Revenue on this issue are partly allowed. Violation of principle of natural justice in as much as non-rendering of opportunity of being heard - CIT (Appeal) is empowered to admit additional evidence during appellate proceedings which were not or could not be produced during assessment proceedings or in the opinion of the First Appellate Authority are necessary for adjudication of pending appeal with the exception that the assessing officer would be given an opportunity to consider said evidences. AO considered evidences produced before the CIT appeal and confirmed their submission during his assessment proceedings. The impugned narrative from the AO clearly establishes that he was afforded an opportunity of considering the details etc filed by the assessee, though strictly not falling in category of additional evidence, by the Ld. First appellate authority which was duly availed. This finding of the Ld. CIT appeal has neither been controverted by the appellant Revenue by way of a ground of appeal nor has the revenue put forth any evidence in support thereof. Consequently, the ground of appeal raised by the appellant revenue is not supported by evidence on records. Accordingly, the ground of appeal raised by the revenue is dismissed.

Issues Involved:
1. Delay in filing the appeal.
2. Addition on account of undervaluation of stock.
3. Addition due to variation in quantum of dispatch of raw blocks.
4. Alleged violation of principles of natural justice.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 5 days. The assessee argued that the delay was due to lack of timely access to records from the department, which was unintentional and accidental. The Tribunal found sufficient force in the assessee's arguments and condoned the delay, allowing the appeal to proceed.

2. Addition on Account of Undervaluation of Stock:
The primary issue was an addition of Rs. 2,51,93,262/- due to alleged undervaluation of stock. The Assessing Officer (AO) contended that the closing stock at Karimnagar should be valued at the same rate as the TADA premises. The AO ignored the assessee's argument that the stock at Karimnagar was of inferior quality compared to TADA. The CIT(A) examined the evidence, including comparative rates of sales and invoices, and concluded that the value of granites mined at Karimnagar was distinct and inferior compared to TADA. Consequently, the CIT(A) deleted the addition, a decision which the Tribunal upheld, confirming that there was no need for interference.

3. Addition Due to Variation in Quantum of Dispatch of Raw Blocks:
The AO noted a discrepancy between the dispatched quantity of raw blocks from Karimnagar and the quantity admitted in sales, leading to an addition of Rs. 9,51,32,300/-. The AO rejected the assessee's explanation that the variation was due to the difference between gross measurement (on which seignorage fees were paid) and net measurement (saleable quantity). The CIT(A) accepted the assessee's contention that such variations were customary in the industry and supported by evidence, including a study by Shodhganga. The Tribunal partially allowed the revenue's appeal, directing the AO to recompute the addition by allowing a 40% reduction for damaged or unsaleable granite stock, based on the industry standards and examining the assessee's records.

4. Alleged Violation of Principles of Natural Justice:
The revenue claimed that the CIT(A) violated Rule 46A by admitting additional evidence without giving the AO an opportunity to examine it. The Tribunal examined Rule 46A, which permits the CIT(A) to admit additional evidence under certain conditions, provided the AO is given an opportunity to consider it. The Tribunal noted that the CIT(A) had called for a remand report from the AO, who confirmed that no substantial new evidence was produced by the assessee. Therefore, the Tribunal found that the AO had been given an opportunity to consider the evidence, dismissing the revenue's claim of a violation of natural justice.

Conclusion:
The Tribunal condoned the delay in filing the appeal, upheld the deletion of the addition for undervaluation of stock, directed a partial recomputation of the addition due to variation in dispatch quantities, and dismissed the claim of a violation of natural justice. The appeal of the revenue was thus partly allowed.

← Previous Next →